Enron Case Analysis

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Introduction

Enron Case Analysis Table of Contents 1.0 Executive Summary 3 2.0 Company History 4 3.0 Organizational Mission 4 4.0 Market Conditions 5 5.0 Accounting Practices 6 5.1 Bonus Program 6 5.2 Mark to Market System 6 6.0 Culture 7 6.1 Financial 7 6.2 Supervision 8 7.0 Affects on the Local Community 8 7.1 Worldwide Effects: 8 7.2 Effects in the Industry 9 8.0 Underlying Issues 10 9.0 What went Wrong 11 9.1 Recommendations 11 10.0 Works Cited 13 Executive Summary This case analysis will talk about the local, state, national, and global effects of Enron's corporate decisions that led to the company's bankruptcy in 2001. The case will give an in depth discussion about Enron and their business practices. It will also explain the social environment the company faced and what caused the decisions that led to Enron's demise. The case will first give a background of Enron and the electricity industry, then go on to explain how they got into the situation they faced. The case will then describe the corporate culture of the company as well as the major cohorts involved in decision making. Some of these cohorts include the top executives, shareholders, and board members. The case will then discuss Enron's accounting practices and their financial statements. It will explain why Enron made certain decisions and who benefited from making these decisions. Then the paper will discuss the underlying issues involved in the Enron scandal. Finally, the paper is wrapped up by personal reflections and recommendations for the company and others involved. ...read more.

Middle

Instead of using actual numbers, most of their numbers they used were estimates of future cash flows. Since they also rewarded bonuses according to these numbers, the numbers tended to be inflated. This is the reason Enron reported gains from 1997 to 2000 when it was later reported that they actually lost 600 million during this period. [7] The culture of the company for the most part supported these accounting practices, but when there was a conflict or someone spoke up, that person was removed from their position. [6] This left little opposition to their faulty business practices. 6.0 Culture Enron over the years created a very distinct culture that actually rewarded unethical behavior. Instead of hiring managers for their management skills, they hired aggressive young candidates right out of college, so they could instill their values upon them. [6] Most of these people knew little about management, but were smart, bold, and aggressive. These were the type of managers Enron wanted to create deals and expand the company at all costs. 6.1 Financial Much of the company's finances were done by Arthur Anderson accounting firm. [2] This meant that the corruption ran deep within the company. For every new deal being made was supposed to be reviewed by the legal department of the manager, the corporate legal department, the chief risk officer and chief accounting officer (Arthur Anderson). [6] But in practice many of these people were often skipped. When Carl Bass of Arthur Anderson spoke out about an unethical business deal being made in 1997, he was quickly demoted and taken off that project. ...read more.

Conclusion

9.1 Recommendations Even though Enron went bankrupt the company is still around. They have been forced to sell off many of their assets, including their corporate office in Houston, but they company itself is not completely erased. [7] Enron should continue to liquidate all assets that do not pertain to their core business, the natural gas industry. They have to in essence start over again as a small gas company. This will allow them to slowly regain their customer base and eventually build back their once proud name. By expanding so quickly in so many areas Enron lost focus on their core business of supplying customers with natural gas. They must regain this focus by producing and distributing low cost natural gas. Also, Enron must make sure that all corrupt company officials are terminated and basically start with a new top management team. This team must be built with not only strong ideas, but also strong ethical beliefs. For Enron to continue on they must do absolutely everything by the numbers, because their books are going to be continuously reviewed for the next five to ten years and they will not be able to withstand any further mistakes. Enron will never regain the prominence it had in the late 1990's, however with hard work and a lot of luck, Enron may land back on their feet within a few years. Enron must make ethical decisions and make socially responsible actions, for all eyes are on Enron to see if they can survive. If they can gratify their creditors and regain their business they can eventually begin to grow again. ...read more.

percent.3 The difficulty with determining a risk premium is that business and financial risks vary according to time and industry. Premiums are also affected by investors' risk aversion. These problems with calculating the risk premium create a greater degree of variability.

* It takes longer to pay the money back. * It has the lowest percentage on the accounting rate return. The advantage of the Beta project is: * If you keep the project going, not a lot of the employees will be made redundant The disadvantages of the Beta project are about the same as the Alpha project.

When you earn money you are given an amount which is tax free. If you want to calculate how much of the money you earn goes towards the Inland Revenue you have t follow certain steps. This will be shown below.

Profitability Ratios: Return on Capital Employed. This ratio shows total company performance in the form of return on the assets employed available to all providers of finance (debt and equity). It thus includes the return to both equity and debt in the numerator and equity and debt financed assets in the denominator.

lead to higher costs for organisation due to above reasons * This might cause a fall in the external image of the company, so the organisation might experience problems in recruiting and retaining employees * It certainly could show itself in low productivity * The combined effect of these would

This depends on different factors. Like the project where it's being used for and the amount of security available to back the loan. Loans are most of the time granted for an extended period for purchase of capital items. A normal business could get a loan for 5 years, but